While plenty of high-yield opportunities exist, investors must always consider the safety of their dividend and the total return potential of their investment. It is not uncommon for a struggling company to suspend high-yielding dividends and subsequently result in precipitous share price declines.
TheStreet Ratings' stock rating model views dividends favorably, but not so much that other factors are disregarded. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.
These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel — rather, use them as a starting point for your own research.
The following pages contain our analysis of 3 stocks with substantial yields, that ultimately, we have rated "Buy." Collectors Universe (NASDAQ: CLCT) shares currently have a dividend yield of 10.00%. Collectors Universe, Inc. provides authentication and grading services to dealers and collectors of high-value coins, trading cards, event tickets, autographs, memorabilia, and stamps in the United States. The company has a P/E ratio of 16.72. The average volume for Collectors Universe has been 38,100 shares per day over the past 30 days. Collectors Universe has a market cap of $110.7 million and is part of the diversified services industry. Shares are up 30% year to date as of the close of trading on Friday. TheStreet Ratings rates Collectors Universe as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 13.9%. Since the same quarter one year prior, revenues rose by 10.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- CLCT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, CLCT has a quick ratio of 1.95, which demonstrates the ability of the company to cover short-term liquidity needs.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Diversified Consumer Services industry and the overall market, COLLECTORS UNIVERSE INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for COLLECTORS UNIVERSE INC is rather high; currently it is at 66.10%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 16.42% significantly outperformed against the industry average.
- Net operating cash flow has increased to $3.92 million or 30.78% when compared to the same quarter last year. In addition, COLLECTORS UNIVERSE INC has also vastly surpassed the industry average cash flow growth rate of -20.49%.
- You can view the full Collectors Universe Ratings Report.